China and the U.S., Frenemies Forever

Nov. 14 (Bloomberg) -- This week China’s ruling elite
appoints new leaders for the next decade. The incoming
president, Xi Jinping, and his colleagues face such fearsome
challenges that, in their moment of victory, one almost
sympathizes. Understanding their difficulties and calibrating
U.S. policy accordingly will be among the biggest tests for the
new Obama administration. For everybody’s sake, Beijing and
Washington both need to do some rethinking.

China’s leaders have grasped the scale of their problem,
even if not the means to solve it. In his outgoing address as
president, Hu Jintao referred directly to the scandals roiling
the Communist Party. “Combating corruption and promoting
political integrity, which is a major political issue of great
concern to the people, is a clear-cut and long-term political
commitment of the party. If we fail to handle this issue well,
it could prove fatal to the party, and even cause the collapse
of the party and the fall of the state.”

Whether or not Hu actually believes it, he might be right.
The seemingly endless pliability of the Chinese populace may be
approaching its limit.

Tainted Loyalties

According to the Pew Global Attitudes Project, 50 percent
of Chinese now regard corrupt officials as a “very big problem,”
up from 39 percent four years ago. If you take concerns about
food safety as a measure of distrust in government, the picture
is worse. Four years ago, 12 percent said tainted food was a
very big problem; now it’s 41 percent.

The people of China understand they’re much better off than
they used to be: 70 percent say their living standards are
higher than five years ago, and a remarkable 92 percent say
they’re more prosperous than their parents. But, as you might
expect of good communists, they’re increasingly preoccupied with
inequality: 81 percent agree (either “mostly” or “completely”)
with the view that “Today, it’s really true that the rich just
get richer while the poor get poorer.”

What the Chinese call “mass incidents” -- strikes and
protests of one kind or another -- are on the rise. Sun Liping,
a sociologist at Beijing’s Tsinghua University (and one of Xi’s
former university tutors, according to some reports) keeps
track: The number doubled between 2006 and 2010 to 180,000 a
year. China is a big country. Even so, that’s a lot.

Socialism with Chinese characteristics is beginning to meet
consumer resistance.

Responding effectively to these discontents will be
fiendishly difficult. The government must fear -- and if it
doesn’t, it should -- that starting to unpick the fabric of the
state will cause the whole garment to unravel. State-owned
enterprises are the crux of the matter. That’s where many of the
well-connected have enriched themselves. The SOEs are also a
main channel of implicit taxation, via monopoly profits, helping
both to finance the state and to fuel China’s development model
of overinvestment and underconsumption.

This, too, is understood by China’s leadership. Hu again:
“We should ... speed up the establishment of a long-term
mechanism for increasing consumer demand, unleash the potential
of individual consumption, increase investment at a proper pace,
and expand the domestic market.” The question is, where to
start? The network of power and privilege, with SOEs at the
middle, may be unsustainable, but reforming it piecemeal,
without disturbing the stability that China’s leaders have made
their totem, looks close to impossible.

Dangerous Pride

The danger in all this for China’s neighbors and hence,
directly or indirectly, for the U.S. is obvious. When domestic
stresses mount, China’s leaders turn up the nationalist pride
and draw fresh attention to what they see as the West’s
centuries-long project to keep China in its place -- not that
many Chinese need reminding of that plan. Only 39 percent view
their country’s relationship with the U.S. as one of cooperation
-- down from 68 percent just two years ago.

Nothing matters more for the well-being of the world than
peaceful and productive relations between China and the U.S.
Both have a compelling interest in getting along well -- and
both have governments apt to succumb to the political temptation
of saber-rattling. Leading up to the U.S. election, the two
candidates confined their discussion of China to competition
over who intended the toughest reprisals. Talk like that is
absurdly shortsighted.

Certainly America’s military strength shouldn’t be
compromised. China’s and America’s largest interests, peace and
commerce, may be well-aligned, but points of contention exist
and conflict is possible. The worst-case possibility needs to be
planned for. American diplomacy should nonetheless strive to
make it less likely.

To avert catastrophe, Americans must pay closer attention
to two points. First, they must keep in proportion America’s
legitimate grievances with China over issues such as currency
policy and theft of intellectual property. Such disputes
shouldn’t be escalated for domestic political purposes. They’re
best resolved calmly in the multilateral forums that exist for
the purpose, notably the International Monetary Fund and the
World Trade Organization, in which China submits to the rules
like everybody else (i.e., when it has to) and is recognized as
a full and equal partner.

True, China has an instinct for abrupt unilateral action
when its pride is bruised. In that regard, it’s just like the
U.S. A little self-restraint on both sides would go a long way.

Second, the U.S. needs to control its disgust for China’s
intolerance of political dissent. China’s record on civil
liberties is indeed lamentable (and in the end likely
counterproductive, even from the regime’s own point of view).
But lecturing China on the subject -- let alone folding this
issue into broader strategic calculations -- won’t advance the
cause. America could moderate its appetite for laying down the
rules for everybody else by reflecting on the complexity, let’s
call it, of its own approach to civil liberties when it sees
vital national interests at stake.

Above all America and the West should keep in mind what
China has achieved for its people in recent decades. What’s
that? Merely the biggest and fastest rise out of poverty the
world has ever seen. No, that doesn’t make it all right to put
pro-democracy activists in prison. It’s nonetheless a stunning
achievement, one to respect and admire.

(Clive Crook is a Bloomberg View columnist. The opinions
expressed are his own.)

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